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AGENDA

The Information Technology Division Presents TECH SOLUTIONS FOR OTC CENTRAL CLEARING AND SWAP EXECUTION FACILITIES November 4, 2010 Prepared and Moderated by Tellefsen and Company, L.L.C. AGENDA. Introduction, Our Distinguished Panel

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AGENDA

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  1. The Information Technology Division PresentsTECH SOLUTIONS FOR OTC CENTRAL CLEARING AND SWAP EXECUTION FACILITIESNovember 4, 2010Prepared and Moderated byTellefsen and Company, L.L.C.

  2. AGENDA • Introduction, Our Distinguished Panel II. Background and Evolution of OTC Clearing, Swap Execution Facilities III. Questions for Our Panel

  3. I. OUR DISTINGUISHED PANEL • Ted Brooks • Director, Clearing Initiatives MarkitSERV • Peter Fredriksson • CEO, Bay Markets AB • Richard Hulit • Executive Vice President, SunGard Brokerage and Clearance • John Rapa • President / CEO, Tellefsen and Company, L.L.C.

  4. II.OTC CLEARING – BACKGROUND • Growth and evolution of OTC markets, asset classes • Dealer versus broker models • Growth of OTC volumes at exchanges/clearing houses – post-Enron • Impact of de-leveraging on transaction volumes, prices, spreads • Bi-lateral clearing versus central clearing

  5. OTC CLEARING BACKGROUND (Cont’d) … • Evolution of futures “look alike” products • OTC markets create liquidity: many products/low volume/short duration • Clearing house structure to mitigate counterparty risks; migrate OTC products into central clearing • Creation of Swap Execution Facilities • Forthcoming FinReg reforms – US, UK, EU • Tech impact of new regulations for OTC cleared products

  6. PROS AND CONS OF CENTRAL CLEARING • PROs: • Safeguards, default protection process • Clearing house risk oversight • Transparency of pricing • Multilateral netting • Efficient post-trade processing • Segregation of customer funds – default/bankruptcy protection • Ability to convert OTC products to futures • CONs: • Lack of fungibility - OTC products • Accounting rules for certain hedges requires perfectly matched offsets • OTC product set may not fit hedgers needs • Margin capital costs • Can be heavily broker-mediated

  7. TECHNOLOGY DRIVERS • Support for new products that have little or no standardization • Need for Straight Through Processing (STP) • Growing rate of regulatory change • Creation of new Swap Execution Facilities (SEFs) • Build versus Buy – state of application solutions available for Buy Side, Sell Side firms

  8. OUTSTANDING VALUE – CDS, INTEREST RATE AND FX SWAPS Source: WSJ

  9. 2009 GLOBAL LISTED AND OTC DERIVATIVES VOLUMES, NOTIONAL OUTSTANDING

  10. OTC PRODUCT VOLUMES AT MAJOR EXCHANGES

  11. QUESTIONS FOR OUR PANEL

  12. THANKS TO OUR PANEL!!!

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